All around Australia's big cities there are thousands of Chinese buying up baby formula, health supplements, skincare products and ugg boots, and shipping them back to China.

Known as daigou - Mandarin for 'buy on behalf of'- these shoppers take orders from customers for products that are hard to find in Mainland China.

They purchase the products in supermarkets, pharmacies or specialist stores, package them up and send them to their customer in exchange for a commission on the purchase. Most of the trades are facilitated via the Chinese social media platform WeChat.

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This might all sound like small beer, but as with so many things about business and the economy in China, the numbers are staggering.

The daigou can literally make or break a brand in China and companies ignore them at their peril.

Livia Wang, the director of CN Access, a consultancy firm which connects Australian businesses with daigou, estimates there are 40,000 daigou working in Australia.

The contrasting fates of baby formula makers Bellamy's and A2 illustrates the power of the daigou market.

Last year Bellamy's decided to cut the daigou out of the trade by selling direct to the Chinese consumer.

It might have seemed like a smart way of boosting profits and the way a company might approach a market in any other part of the world, but it backfired spectacularly.

Bellamy's misread demand for its products in China in the wake of changes to the laws on importing baby formula and a huge surplus of stock.

So it discounted its products in China, thereby taking away the daigou's profits, which is the difference between what they paid for the product at an Australian supermarket and what they can sell it to Chinese consumers for.


The company issued two profit warnings and ultimately shed its chief executive. Its shares fell from around A$12 to under A$4 following news of its sales slump emerged late last year and have only managed to struggle back to about A$7 recently.

By contrast, A2, which was founded in 2000 in New Zealand, has actively courted the daigou and reaped the rewards. In mid-June it upgraded its already-bullish sales forecasts and announced it would increase production on the back of continued strong demand.

A2 has done this by keeping a tight lid on supply, ensuring there is enough demand to provide a healthy profit margin for the daigou, who in turn continue to send the product to China.

The company also provides the daigou with marketing material to distribute to their clients via Chinese social media platform WeChat.

While many daigou are small-time operators, such as students hoping to make a few extra dollars, there are believed to be half a dozen or so mega-daigou with huge turnovers.

One such trader is Hung Nguyen, who operates out of a pharmacy owned by his wife in Regents Park, a suburb 20 km from the centre of Sydney. His business is estimated to turn over $300 million annually, according to reports.

He literally sends semi-trailer loads of goods to China and such is the scale of his operations that he is one of the largest buyers of airfreight from Qantas.

It's certainly not the way that Western companies are used to doing business or to enter a new market, but the daigou provide a way into the Chinese market that would otherwise be impenetrable for many businesses.

In fact, consultant Livia Wang goes so far as to say that doing China without the daigou market is impossible and that you don't see any popular Western products on the shelves that weren't first sold by daigou.

She says that around Australia there are around 1200 "gift stores", which cater specifically to daigous, selling them products and packaging them up for them, ready to post back to China.

One gift store group is going so far as to list on the Australian stock market.
AuMake Australia has quietly built up five stores around Sydney.

Husband and wife team Joshua Zhou and Lynn Zheng have leveraged their backgrounds as Chinese tour operators to start the business and are looking to raise A$6 million from investors.

AuMake turns over about A$13 million a year and is looking to expand to 20 stores over the next 12 months, with plans to develop a flagship store on George Street, the main thoroughfare through the centre of Sydney.

It's a way for local investors to get exposure to the daigou trade, should they want it.

While the trade is strong now and in the foreseeable future, that might not always be the case. Import regulations can change quickly, and China could start doing business more like the west, relying on wholesalers and distributors for imports rather than tens of thousands of individuals.

Investors have a choice but, for now, Australian brands don't.